Modelling the accruals process and assessing unexpected accruals*

More documents

Recommendations

Info

Alternatively, future research can move away from the unexpected accruals approach and explore viable alternatives to extract abnormal accruals, such as ratio analysis. Despite the finding in Beneish (1997) that a combination of changes in accounting ratios is better at detecting GAAP violations than the Jones model unexpected accruals, his approach lacks popularity. 25 The first reason could be because his approach yields probability measure rather than the conventional abnormal accruals, for which interpretation is more intuitive. The second reason could be because this approach is interested in overall accruals rather than specific accruals, and it is the overall and not the specific abnormal accruals that determine whether a firm is aggressive or conservative. Hence, it would be fruitful for future research to overcome these two issues to develop a ratio analysis-based approach that extracts abnormal accruals from total accruals. 25 Beneish (1997) examined changes in eight ratios – gross margin, depreciation, SG&A, sales growth, total accruals to total assets, soft-assets to total assets ratio, inventory turnover, and receivables turnover. 42
References Ball, R., Shivakumar, L., 2006. The role of accruals in asymmetrically timely gain and loss recognition. Journal of Accounting Research 44 (2), 207-242. Bartov, E., Gul, F.A., Tsui, J.S.L., 2000. Discretionary accruals models and audit qualifications. Journal of Accounting & Economics 30, 421-452. Basu, S., 1997. The conservatism principle and the asymmetric timeliness of earnings. Journal of Accounting & Economics 24, 3-34. Beneish, M.D., 1997. Detecting GAAP violation: implications for assessing earnings management among firms with extreme financial performance. Journal of Accounting and Public Policy 16, 271-309. Bewley, R.A., 1979. The direct estimation of the equilibrium response in a linear model. Economic Letters 3, 257-261. Black, E.L., McCulloch, B.W., 2004. Earnings management relations of accruals components: a multi-period setting. Brigham Young University. Dechow, P., Kothari, S.P., Watts, R.L., 1998. The relation between earnings and cash flows. Journal of Accounting & Economics 25, 133-168. Dechow, P., Sloan, R., Sweeney, A., 1995. Detecting earnings management. The Accounting Review 70 (2), 193-225. Dechow, P.M., 1994. Accounting earnings and cash flows as measures of firm performance: The role of accounting accruals. Journal of Accounting & Economics 18, 3-42. Dechow, P.M., Dichev, I.D., 2002. The quality of accruals and earnings: the role of accrual estimation errors The Accounting Review 77 (Supplement 2002), 35-59. Dechow, P.M., Sloan, R.G., Sweeney, A.P., 1995. Detecting earnings management. The Accounting Review 70 (2), 193-225. Feltham, G.A., Ohlson, J.A., 1995. Valuation and clean surplus accounting for operating and financial activities. Contemporary Accounting Research 11 (2), 689-731. Greene, W.H., 2000. Econometric analysis, 4th edn. Prentice-Hall, Inc. Gul, F.A., Tsui, J.S.L., Bartov, E., 2000. Discretionary accruals models and audit qualifications. Journal of Accounting & Economics 30, 421-452. Healy, P.M., M.Wahlen, J., 1999. A review of the earnings management literature and its implications for standard setting. Accounting Horizons 13 (4), 365-383. Hribar, P., Collins, D.W., 2002. Errors in estimating accruals: Implications for empirical research. Journal of Accounting Research 40 (1), 105-134. Jones, J., 1991. Earnings management during import relief investigations. Journal of Accounting Research 29 (2), 193-228. Kothari, S.P., Leone, A., Wasley, C., 2004. Performance matched discretionary accrual measures. Journal of Accounting & Economics 39 (163-197). 43
Page 1 and 2: Modelling the accruals process and
Page 3 and 4: insights into what unexpected accru
Page 5 and 6: attributed to the firm‟s biased a
Page 7 and 8: 2 Direct and indirect method to cal
Page 9 and 10: flow associated with income recogni
Page 11 and 12: change in net financial obligations
Page 13 and 14: t t TACC CNICFt T t t t titti CNI
Page 15 and 16: period of income recognition and ca
Page 17 and 18: expenses or receive less revenue in
Page 19 and 20: any accounting distortions (conserv
Page 21 and 22: this paper). Combining the normal a
Page 23 and 24: 4 Assessing unexpected accruals mea
Page 25 and 26: firm j and the benchmark firms. The
Page 27 and 28: If there is no deviation in operati
Page 29 and 30: accruals is highly positive (negati
Page 31 and 32: These restrictions respectively imp
Page 33 and 34: The second source of contamination
Page 35 and 36: Even if the use of changes in cash
Page 37 and 38: The item m m CNI , 1 a a CNI
Page 39 and 40: Hence, to manage earnings downward
Page 41: 6 Conclusion My analysis reveals th
Page 45 and 46: Appendix 1: Derivation of Normal Ac
Page 47 and 48: accrued (initiated deferred) propor
Page 49 and 50: The portion of underlying income in
Page 51 and 52: Hence, the correlation between norm
Page 53 and 54: Table 2: Summary of Accruals Compon
Page 55 and 56: Table 4: Summary of the Bias in Une

Modelling the accruals process and assessing unexpected accruals*

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?